COVER STORY

Saturday

16

February , 2019

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The Micro, Small and Medium Enterprises (MSMEs) sector is one of the highest employment generating sectors in India. Yet, it is facing a number of challenges. In India, the total number of registered and unregistered MSMEs is about 42.50 million and constitutes around 40% of the country’s workforce. But the sector is not being able to reach the estimated growth rate due to issues like insufficiency of funds, limited resources and high global competition. Additionally, government policies like demonetisation and Goods and Services Tax (GST) have posed serious challenges and needs focused policy intervention.

The MSME sector did not receive much attention in the interim budget. Acting Finance Minister Piyush Goyal has announced that GST registered SME units will get a 2% interest rebate on incremental loan of `1 crore. Additionally, the budget makes it mandatory for the government to source a minimum of 25% of its materials from the sector. Of this, the material to the extent of at least 3% will be sourced from women owned SMEs.

In the interim budget, MSMEs had expected to have some more benefits and allotments after their recent troubles that were rooted in governmental polices like demonetisation and GST implementation. According to estimates from the All India Manufacturers Organisation (AIMO), demonetisation brought about a loss of around 3.5 million jobs in the last four years. The AIMO survey, which analysed 34,700 samples from traders and MSMEs across the country, exposed that while job loss was reported at the rate of 43% in the trading segment, micro-segments reported job losses of 32%, small segments reported 35% and medium-scale industries reported 24% job losses. Before the sectors could recover from the effect of demonetisation, the newly implemented taxation regime further complicated matters. There was an expectation from the sector that this budget will make amends. However, industry insiders feel that what has been committed in this budget is too insignificant to strengthen the sector.

The National Sample Survey (NSS) of Periodic Labour Force for 2017-18 has revealed that unemployment is at its highest rate in last 45 years in India. In such a situation, the need to strengthen the Indian MSME sector was more acute. Yet, there was no fruitful steps taken to enhance this sector. The budgetary provisions for the sector are essentially a repeat of the ‘MSME Support and Outreach Programme’ that was announced in 2018.

The way forward

Before the interim budget, the MSME sector benefited from the recent changes in the GST regime that were approved in the 32nd GST Council meeting held on January 10, 2019. It has proposed to increase the basic exemption limits for registration as well as the maximum turnover limit for the composition scheme. Such measures will greatly improve the ease of doing business as most of the small and medium businesses are not fully equipped to encounter the complex GST regulations, filing of tax returns, claiming input tax credits and so on. However, the budget could have better provisioned for this high employment generating sector.